Powell's 'just below' comment seen as suggesting fewer rate hikes

Leticia Stanley |Friday, November 30, 2018

Dollar weakens as cautious Fed leads to rate-hike rethink

A day after President Donald Trump's latest attack on the U.S. central bank, Federal Reserve chief Jerome Powell hinted Wednesday (Nov 28) the key lending rate would move higher but said there was no preset course. The minutes show support for a fourth rate hike this year when the committee meets again, December 18-19, if the labor market and inflation continue as expected.

That contrasted with a remarkPowell made in October that the Fed's policy rate was still well below neutral.

The months following Powell's original comments were hard for the stock market as the interest rate, concerns over the ongoing trade war with China and turbulence in the tech sector left all three major indexes in correction territory before bouncing back this week. The minutes showed a couple of participants felt the benchmark fed funds rate "might now be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity".

"So far, I'm not even a little bit happy with my selection of Jay", Trump told the Post.

The Fed said that nearly all of its policymakers agreed that "a gradual approach to policy normalization remained appropriate" in its newly released minutes of the Federal Open Market Committee (FOMC) meeting which was held from November 7 to November 8. And neither should investor expectations about the Fed's future work. But signs of a slowdown overseas and almost two months of market volatility - including a sharp sell-off in equities last week - have clouded an otherwise rosy picture of the USA economy. But some economists say three rate increases for next year are beginning to look less certain.

Powell has been gradually raising rates since he was confirmed to his position by Trump in January.

The steepening move on Wednesday immediately following Powell's remarks surprised some market participants.

Next month's expected quarter-point increase would lift the central bank's target for the federal funds rate to a range of 2.25 percent to 2.5 percent.

In Israel, analysts do not expect an additional rate hike until well into 2019.

The Fed chair's latest statements come after a barrage of criticism from Trump. "This was again on display today", RBC Capital Markets chief USA economist Tom Porcelli wrote in a note.

The US Federal Reserve Chairman has raised speculation the Fed might start easing-off on its series of rate hikes.

"The Fed's stance is much more dovish than it was earlier in the year", said Matthew Keator, partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. It was 2.95 percent earlier this month, suggesting investors have scratched off a full rate hike from their forecasts of Fed policy.

Powell has dismissed the unprecedented political attacks from Trump, saying they have no influence on deliberations of the independent central bank. The December CPI will be low and even negative and the rate of annual inflation will reach the lower range of the price stability target set by the government, which will signal a wait until the next rate hikes.

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